Cryptocurrencies might have been around for a while, but it has only been in the last few years that a large majority of the population has taken notice. As Bitcoin dominates mainstream media headlines, more people are becoming aware of this parallel monetary universe, and wanting to be a part of it. Before we get too technical, let’s take a look at the 3 main types of cryptocurrencies.
What Is Cryptocurrency?
Cryptocurrency is the term given to any digital currency that exists online. Typically, these currencies are built on blockchain technology and operate in a decentralized nature, meaning that no one entity is in charge. Cryptocurrencies allow people to manage their finances outside of the control of banks or governments, putting the control back where it belongs.
Instead of banks handling a person’s transactions, they are executed by a network of nodes (computers) that maintain and operate the blockchain network. Cutting out the third party, funds are seamlessly transferred from the sender to the recipient in a peer to peer nature. To understand more about blockchain technology, see our simple introduction.
The 3 Main Types Of Cryptocurrency
Breaking the cryptocurrency industry down into three segments, one will find Bitcoin, altcoins, and tokens. All the cryptocurrencies on the top 100 will fall into one of these three categories. Let’s explore further.
Bitcoin is not only the biggest cryptocurrency, but the first one too. Launched in 2009 by the anonymous entity Satoshi Nakamoto, Bitcoin introduced the world to a new payment system as well as blockchain technology. This digital currency allows users to send funds across borders instantly with substantially lower costs than doing it with fiat. The peer to peer payment system also allows users to buy goods and services, with more merchants accepting Bitcoin everyday.
Number two in our list of different types of cryptocurrencies is altcoins. The term altcoin broken down stands for alternative cryptocurrency coin (alternative to Bitcoin). There are thousands of altcoins on the market, and many that fit into their own categories like stablecoins, protocol cryptocurrencies, anonymous cryptocurrencies and more.
The name first appeared when new cryptocurrencies were forked off of Bitcoin and had just a few changes to their predecessor. These days there are a plethora of new and innovative solutions being added to the crypto industry, each backed by their own altcoin. Two examples of this are Ethereum and Neo. While Bitcoin was designed to be used as an alternative payment system, these two platforms were designed to facilitate the building of decentralized apps (dapps).
Tokens offer a new take on the blockchain industry, in that they don’t necessarily require their own blockchain. Tokens are typically designed to facilitate activity and smart contract functionality on dapps as opposed to being used as a medium of exchange. As these dapps are built on other networks, Ethereum or Neo for example, the dapp is operated by that network’s nodes as opposed to its own.
While these tokens have little value outside of their dapp, as they can only be used to engage in things like voting or obtaining advantageous goods within the platform, many people buy to sell them at a later date.
Another type of token is one issued by an ICO (Initial coin offering) where they represent an early investment in the company, similar to a stock offering. In this case, they could be divided into security tokens and utility tokens.
One Step At A Time
While there is still much to be learnt about the crypto industry, this provides a good foundation. Knowing the 3 main types of cryptocurrency will help you navigate the market by first understanding what value a new coin brings, and then understanding the project behind it. Keep an eye on our insightful Oobit blog to learn more as you go.